Investing your earning is the need of the hour, not matter the amount you are earning. While there are plenty of options you can consider, the most important choices come under the short tenure category. Under this, you can either opt for a saving account or a liquid funding option such as mutual funds.
But is the different between these two options and how it can benefit you? Given below is the difference between the two investment options and how you can benefit from investing in this short term tenure:
The rate of return: Both options offer a return on the amount that is invested. In both cases, the higher the amount you invest, the more you will receive in return. However, the rate of return for both options is different. In the case of mutual funds, the returns can be as high as 7%. However, this rate will differ on the market conditions. Meaning it can drop to the lowest amount at a short notice, thus leading to no returns at all. With the savings account, the rate of return can be anywhere between 3 to 4.5%. Normally, this will stay consistent through the investment tenure without changing drastically.
Tax implication: In both investment options, the tax is levied. However, the rate of the tax levied will differ with each option. In the case of the mutual funds, the short-term capital gains tax is levied based on the investor’s applicable tax slab tax rate. In the case of the saving account, the interest that is earned is taxable as per the investor’s applicable income tax slab. In either case, the income bracket will play an important role in determining the tax bracket for investment in either option.
Ease of operation: If you need to access the funds in the mutual funds, you need not go the institute. If there is any amount that needs to be paid, it can be done online. This makes it simple to access, especially on short notice. However, with the savings account, in order to access the funds invested, it first needs to be deposited in the bank account first.
Suitable for: As an investor you can choose to invest in either option. However, each option possess different risks levels and different returns. In the case of mutual funds, the risks are high, but so are the returns. For those who have a high risk appetite this makes for an ideal investment. For those who want to just park their funds with the least amount of risk, the saving account makes for a great investment choice.